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Legal dispute

Trust and SMSF legal disputes grow

By Yasmine Masi7 December 2021

Legal disputes over trusts and self-managed super funds (SMSFs) are on the rise as the number of Australians looking to take control of their own super has increased, according to estate planning and trustee services provider, Equity Trustees.

Marie Brownell, National Manager, Estate Planning at Equity Trustees, noted several reasons for the marked increase in the past year, including the use of DIY or off-the-shelf trusts that can lead to longer term issues.

“A common issue we see with trusts is where someone has gone to their accountant to seek advice on how to minimise tax,” she said.

“The accountant then uses an off-the-shelf trust which is often not drafted properly. Australians are a nation of DIY fanatics but trusts are complex legal structures and not something anyone should create without specialist legal advice.”

Brownell also highlighted a rise in legal wrangles among SMSFs, as the latest Australian Taxation Office (ATO) data showed there are almost 600,000 Australian SMSFs with a total of 1.11 million members.

“As a result of the proliferation of SMSFs in Australia, we are seeing more SMSFs challenging trust decisions as a result of trustees acting negligently, incompetently or even fraudulently,” she said.

Brownell also highlighted the case of Wareham v Marsella as an example, where upon the death of an SMSF member, the trustee disregarded the trust’s objectives and wishes of the member in their will and exercised non-genuine discretion over the SMSF’s death benefit.

“Before setting up an SMSF, it is important to understand the trusts rules,” Brownell said.

“It’s often forgotten that superannuation death benefits do not automatically fall into the estate for distribution in accordance with the will. In the absence of a binding death benefit nomination, the trustee of the fund will decide who gets the benefit.

“What’s usually overlooked is who that continuing trustee might be. If it’s someone who stands to benefit themselves, in a manner contrary to your wishes, then you need to carefully consider what steps you need to take to ensure your death benefit is paid as you intend.”

Brownell also highlighted several reasons to establish a trust, including for the protection and transfer of wealth and business assets, to have flexibility in the distribution of income and capital to beneficiaries across generations, for the management of superannuation assets, and to establish regular giving to charitable causes.

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